The Vision is to create Transformational Logistics as an umbrella term for Logistics in Emerging (or fast growing) and Developing (or frontier) markets – see Introducing Transformational Logistics. The term was coined by Rob Bell, CEO of Archomai and two friends from India: B. Sridhar of the Bengal Tiger Line and N. Kumar of Sanmar Chemicals – both highly committed members of the CII (Confederation of Indian Industry) and, well respected commentators on the Indian Industrial scene.
Invited by the CII Logistics Group to explore ideas on Logistics in India, Rob Bell met with a number of leading industrialists (Kishore Biyani and Anshuman Singh of the Future Group; Ganesh Raj of DPW; Rakesh Bharti of the Bharti Group; Ramachandran of the Naesey Project in rural Tamil Nadu and many others all over India. In parallel, discussions with Humanitarian Logistics experts, a number of FMCG specialists with extensive experience in Emerging and Developing or Frontier markets challenged the idea that logistics and supply chain thinking and practice was uniform and homogenous. Then, intense media coverage of global disasters such as New Orleans and the Indian Ocean Tsunami; Haiti, Chile and Pakistan opened up fresh dimensions. Having worked in Russia and Central Europe after the fall of the Berlin Wall there were other transition economies that had to be considered.
It became clear that despite the view that globalisation was creating a homogenous and high tech enabled world market; logistics and supply chain reality on the ground highlighted a need to open up the discipline to a wider debate.
See: Introducing Transformational Logistics for a definition.
The following notes are taken from a more detailed Literature Review developed by Rob Bell in the process of writing the various posts on the Blog. This is an evolving bibliography and will be upgraded from time to time.
1. Mainstream Logistics and Supply Chain thinking.
Literature on Logistics and Supply Chain characteristics has evolved from Marshall’s (1997) ground breaking emphasis on demand patterns driving architecture – though critics observe a tendency to ignore volatility and uncertainties – and, Lee’s (2004) emphasis on lean supply chains and cost; toward more innovative, responsive and agile supply chains that operate in highly dynamic environments (Towill & Christopher, 2002). For example, Gattorna’s (2006) focus on – lean, fully flexible, agile and continuous replenishment offers a number of options for different products and markets.
However, as Anderson (2005) has argued, too many supply chains are hard-wired “accommodating only standard service offerings with little or no ability to meet fast-changing availability or delivery requirements”. This is especially challenging when we observe that supply chains and not companies compete (Christopher, 2006) and, with outsourcing, that this may mean supply chains that stretch over different geographies and informal players beyond the first tier of formal suppliers and located in Emerging and Developing economies.
2. Looking at the numbers.
The World Bank’s LPI (Logistics Performance Index) is an invaluable source of data on the state of play in over 130 global economies. Then, there are a number of UN Logistics Assessments on a market by market basis and then, there is the data on the MDGs (Millennium Development Goals). This is where Poverty becomes a central part of the story. Add in a number of evaluations on ability to do business and corruption indicators and there is sufficient data to develop a compelling base case. The Guardian has launched a useful set of links to all of these data sources.
3. Rethinking the Logistics and Supply Chain model.
As Mauro Guillen (Limits of Convergence, 2006) makes plain, the widely accepted view that globalisation delivers economic convergence across national boundaries and homogenous markets is flawed. As we focus on logistics and supply chain thinking and practice in Emerging, Developing and Frontier markets – the Majority World – the flows (physical, information and cash) that connect local to provincial, national and global markets are far from uniform.
These are the markets that are characterised by asymmetrical supply chains; those that combine sourcing from highly fragmented small scale, low tech and low cost growers supplying with those that add value and take a higher proportion of the price downstream in the store. For example, Coffee (Daviron et al, 2005). In 1971 the price paid to growers was over 20 per cent and, the added value in consuming countries was over 55 per cent. By 2007 the price paid to growers had fallen to 7 per cent. The same is true of the Banana (Wiley, 2008) and other commodities.
These markets are challenged by the volatility of global commodity pricing and, by limited and low-tech capacity; a shortage of resources and market access. In other words, there is a need for an industrial and logistics perspective that allows for more added value at source and, for a business model that enables a more inclusive approach. Malcolm Harper’s work on Inclusive Value Chains (Inclusive Value Chains, 2006) allows value chains to be built that can include and benefit poor producers by opening up markets beyond the local; facilitating access to the growth of demand in far flung places which could never be reached by these highly fragmented small holders on their own.
4. Global realities.
Drucker said that the future was demography and, with global population rising from 6 to an estimated 9 billion by 2050 much has to be done to understand and deal with the challenge that this will pose on all markets. Dicken (Global Shifts, 2009) and Held & McGrew (The Global Transformations Reader, 2000) provide excellent starting points to introduce a wide range of themes. Others include:
- Poverty. Paul Colliers brilliantly argued the Bottom Billion argues for a concerted effort with those countries that survive rather than prosper. C K Prahlahad opened up a huge debate on how these markets – and the market at the Bottom of the Pyramid – offer significant opportunities for global business. Robert Guest’s the Shackled Continent (2004) takes the diagnosis of the poverty trap to Africa.
- Food, Fuel and Finance. The literature on the 3 F’s crisis is huge and links with the Globalisation debate. Paul Krugman (The Return of Depression Economics, 1999) and Stiglitz most recently with Freefall (2010) link free markets with the sinking of the global economy. In particular, highlighting the shock therapy that Russia experienced during the Yeltsin years. Others highlight the volatility of energy and commodity markets. This macro perspective has a clear impact on infrastructure investment and, this in turn impacts exim (export and import) performance and market access. On the ground, there is a significant debate on finance available to the bottom of the pyramid and, small business. Much has been made of micro finance. In particular, Yunus, The Banker to the Poor, and Counts Small Loans Big Dreams. However, Milford Bateman and others lead the critique of micro finance as the universal panacea arguing that it may help to buy a sewing machine but will not facilitate capital investment on an industrial scale.
- Infrastructure. John Reader’s Africa (1997) highlights the problem. Africa is the most stable land mass and yet the most divided continent. The boundaries dividing the forty-six nations add up to more than 46,000 kms (compared with 42,000 in all Asia). Twenty have four or more neighbours; Tanzania and Zambia have eight; Zaire and Sudan have nine. Having “difficult” neighbours in Africa can be risky. Especially if they provide access to the sea and, fifteen African states are entirely landlocked, more than the rest of the world put together. Without Infrastructure and connectivity whole industries suffer. See the World Bank’s Africa Development Forum Report, Africa’s Infrastructure (2010) for illustrations of how over half of Africa’s improved growth performance can be attributed to infrastructure investment. Take Vietnam competing with Malaysia for Japanese market share in textiles. Ex factory prices in Vietnam were far lower than in Malaysia but logistics and market access were superior and, total cost delivered to Japan much cheaper. These days, companies like Tesco argue that they have done what they can on profitability in store but, as in the case of their Korean operations, logistics and the supply chain will give them their advantage. Hard and soft infrastructure makes the difference but no two markets are the same and, much needs to be done to develop strategies to respond.
- Consumption revolution. Andy Sumner (at the Institute of Development Studies), has challenged Collier (2006) view of countries being poor highlighting that approximately three quarters of the world’s 1.3 billion poor people today live in MICs (Middle Income Countries), with the others living in LICs (Low Income Countries), mostly in Africa. This contrasts with twenty years ago when 93% of poor people lived in LICs. Poor people have not been moving; the countries within which they live have changed from being LICs to being MICs. Work by Tom Reordan on the growth of organised retail in emerging and developing countries underpins the revolution in consumption.
- Urban and rural mix. Le Corbusier defined many cities as designed by donkeys wandering around and history offers countless examples of different philosophies that built (and destroyed) great cities worldwide. From the Incas who stretched their Empire over 3,000 kms without the wheel to the fall of Carthage; Pombal’s redesign of Lisbon after the earthquake; Wrens aborted attempt at London after the Great Fire; Hausmann’s designs for Paris and those that look for inspiration in the favelhas and slums of the emerging world, there is much to be considered. Perlman (Favelha, 2010) provides a fascinating insight into more than 1,000 favelhas in Rio – 19 per cent of the city’s population. And all of these studies illustrate how logistics and connectivity are crucial to both urban design and, rural connectivity.Jane Jacobs (Death and Life of Great American Cities) through to Brugmann (Urban Revolution,2009) consider the shape of cities past and to come. Mike Davis (Planet of Slums, 2006) gives a useful insight into this pressing issue and, The LSE’s Endless City (2010) speaks of seeing like a City and, offers significant statistical insight. The Schumacher Briefings are useful (Creating Sustainable Cities, 1999 & Ecovillages, 2006) offer useful insights from a tradition that is returning to relevance.
- Informal and formal realities. This is a massive and controversial area. The literature splits into 4 Schools:
– Dualist (ILO, 1970s) The informal sector is compromised of marginal activities distinct from and not realted to the formal sector;
– Structuralist (Moser & Portes, 1970s & 80’s). The informal sector is made up of subordinated economic units (micro firms) that serve – through outsourcing – to reduce input and labour costs. This serves to increase competitiveness of large Corporates.
– Legalists (de Soto, 1980s & 90s). Informal entrepreneurs don’t register but this is more a function of a legal process that is not fit for purpose than any deliberate attempt to avoid tax etc. This has consequences for banking and credit terms and restricts the ability to grow.
– Il-Legalists. (Maloney, 2004). The neo-liberal position is that these micro firms and entrepreneurs set up in the shadow economy to avoid – deliberately – all legal process.
The fact is that few countries have more tax payers than those that live and work beyond formal boundaries. WIEGO has produced an invaluable framework for this discussion. See: http://www.wiego.org/about_ie/oldandnewview.php Then, Guha-Khasnobis et al (Linking the Formal and Informal Economy, 2006) opens up a series of perspectives that are central to development economics. The issue that needs to be dieveloped far more is the impact the shadow economy has on performance and productivity. T L emphasises that this is not a clash of civilisations. After all, Hedge Funds have not been regulated either.
- Mountain economies. Professor Adam Pain has done excellent work on Afghanistan (carpets) and, wild honey in Southern India. Much more can be done in this area.
- Gender issues. WIEGO have done terrific work in defining both the informal market and, the impact of global issues on the gender agenda. Clearly, this is a key socio economic reality in all sorts of markets and, in terms of logistics, opens up a huge set of mentoring and inclusion opportunities and challenges.
- Growth beyond the G-7. A shelf load of books on India; Mahajan (Africa Rising, 2008) on Africa and others on South America and Asia highlight the huge potential beyond the Developed World and some commentators observe the rumblings of Shareholder Activism looking for higher returns from the large Corporates and urging them to offer more on the BRIC (Brazil, Russia, India, China) and the Second Eleven.
- Environmental issues and sustainable growth. Again, a huge literature is building on this. The Stern Report sets the scene and, Helm & Hepburn (The Economics and Politics of Climate Change, 2010) offers wide ranging insights into the landscape. Collier (Plundered Planet, 2010) develops the Bottom Billion theme into the challenge of a sustainable environmental future. Then there is a growing literature on the nature of Green Supply Chains and what needs to be done. This is a massive area and of considerable relevance to Emerging and Developing markets.
5. Humanitarian Logistics.
The Aid industry is a $130 billion a year market. Initially, T L looked to H L as an inspiration and as the model of an umbrella term. On closer inspection, H L was a good deal less developed both in academic and best practice terms than had been thought. Peter Tatham has done valuable work in compiling a useful Bibliography and, several recent studies on recovery from disasters opened up other possibilities.
Tomasini and Van Wassenhove (Humanitarian Logistics, 2009) cover some of the ground but so much more needs to be done. Lizarralde et al (Rebuilding after disasters, 2010) opens up a number of perspectives that are not best answered by an open market or an invisible hand and Keen (Complex Emergencies, 2008) develops the catastrophe into the context of internal war and, Collier takes this into those places where mineral resources are a source of destabalisation and civil strife rather than sustainable growth.
Simply put, H L comprises three core disciplines: 1. Preparation and readiness 2. Emergency response and, 3. Rehabilitation. Transformational Logistics can play a significant role as a catalyst for phase 3.
The Aid agenda has developed into a Punch and Judy show with Jeffrey Sachs (The End of Poverty, 2005) and (Common Wealth, 2008) arguing the need for an increased Aid budget funded by the Developed World – this is backed by Bono and Bob Geldof. William Easterly (White Man’s Burden, 2006) and more recently Dambisa Moyo (Dead Aid, 2009) argue that the Aid effort has achieved very little and, poverty persists.
The Aid industry is estimated at $130 billion a year. This compares with the global arms industry that was estimated at $1,464 billion for 2008 by SIRI (Stockholm International Peace Research Institute). Add in the “privatised” budget ($100 billion during 2008) and the Aid question is put into perspective. However, there are growing concerns that the current financial squeeze demands a re-think on the approach to Aid worldwide.
A value for money perspective is starting to open up the black box on Aid. The US contributes over $607 bn per year (41 per cent of global Aid) – though over half of this is tied to the purchase of US products and services. Are there enough checks and balances to ensure that these products and services are competitively priced? In fact, there is a strong move to push for greater transparency. Campaigners, including the One campaign, have launched the acronymic Track principles; demanding that all aid be (T)ransparent, (R)esults-oriented, (A)dditional to existing aid, (C)onditional on fiscal transparency and good governance and with a mechanism to know that the promise has been (K)ept. In many ways, this thinking applies to other supply chains. For example, the M&S Plan A is looking for total transparency on their Textile supply chains. Right now, this works at garment level but not much further upstream. This is where a transformational perspective can be used to galvanise research and develop improved performance.
6. A Transformational toolkit.
- Inclusive value streams. Wiseman Dairies, Britain’s largest supplier of fresh milk issued a profits warning in September 2010, wiping off £100 million from the value of the company. Why? Margins are being squeezed by a price war between the major retailers whom they supply – Tesco; Sainsbury’s and the Coop. Wiseman estimate that this clash would cost them £23 million in profits over the next 18 months. Several analysts are satisfied that the Wiseman business model is sound but that there can be no defence to a retailer on a discount tack. This is the developed world. Imagine what happens to suppliers in developing markets – with none of the capital resources of the major suppliers elsewhere. We have seen how Coffee, Cocoa and Bananas are all subject to these pressures. In fact, from over 20 per cent of the consumer price in the 1970’s coffee farmers by 2006 were left with no more than 7 per cent.Harper (2009) uses several examples from Honey to Cotton to illustrate the need to open up supply chains to more inclusive financials. This means more on values and less on the ever better, cheaper and faster drive for profits which – as the Wiseman example illustrates – are driven by retailers in the developed world. Much more research and case study work in this field is needed.
- Ethical supply chains. WISE (the Wilberforce Institute for the Study of Slavery and Emancipation) is based at the University of Hull. There is huge scope to open up the social justice arena to explore global supply chains. M&S Plan A is looking for full transparency on its textile supply chain by 2020 and this illustrates part of the challenge. We need to develop the tools to make this happen. There are any number of standards on these issues but this fragmentation is not helping the cause. Again, T L can be a useful catalyst to ensure that a global standard develops.
- Design. Paul Polak (out of Poverty, 2008) looks at thinking more simply; challenging the fact that 90 per cent of global designers work on the needs of the affluent 10 per cent. More has to be done to work on the needs of those concerned with livelihoods not lifestyles.
- Simply modal. Better, cheaper and faster techniques open up logistics to rocket science GPS tracking systems and, state-of-the-art logistics software and assets. For many markets this is unattainable and more effort needs to be focussed on adaptability; affordability and, accessibility for the Majority World. This can be anything from manual handling systems as used by Coca Cola in Africa through to Shelf Ready packaging used in many parts of the world. And now, links to mobile technologies open up all sorts of possibilities for aggregation and connectivity such as eChoupal in India.
- Skills. The CII (Confederation of Indian Industry) estimates that India will need 450 million skilled workers by 2022. Right now, India has capacity to offer 3.2 million courses per year. To reach the target India will have to up this capacity to over 40 million per year. This is the story all over the developing and emerging world and, more needs to be done to explore ways in which technology (mobile phones etc) can increase reach and delivery.
- Technology. This is a massive field and should be driven by adaptability; affordability and accessibility. These will come from the specific needs of local users, consumers and stakeholders. For example, mobile technology, wireless and cloud computing offers significant gains in these markets where connectivity can enhance livelihoods and not just lifestyles – less features and more benefits.
7. Challenging the thinking.
The major focus of Transformational Logistics is to act as an umbrella term for Logistics and Supply Chain ideas and techniques in Emerging, Developing and Frontier markets. As indicated elsewhere, this means looking closely at a wide range of diverse markets:
– Emerging: The BRIC (Brazil, Russia, India and China) and Second Eleven Economies (South Africa, Mexico, Vietnam, Indonesia etc).
– Developing and Frontier: A host of African, South American and Asia economies.
– Devastated: Haiti, Chile and Pakistan are recent examples of high profile geo-metrological emergencies. Others such as Niger don’t generate the 24/7 exposure but have to deal with serious challenges that put their economies and livelihoods at considerable risk.
– Dislocated: Iraq and, those extreme emergencies where
– Transitional: The Soviet economies and their shift from Central Planning to markets.
– Regional variation. Global markets are not homogenous and so too with regions themselves. Back in the 1990s and early 2000’s, I worked in Eastern Europe and noted the similarities between Prague; Warsaw; Riga; Budapest and on into Moscow and St Petersburg. Each of these cities had more in common with each other than their hinterland and, the connectivity with remote rural areas becomes a focus to open up markets.
Some of these markets depend heavily on outside help. For example, it is estimated that it will take Iraq at least 10 years to achieve a fully functioning market economy. Russia is heavily dependent on oil and gas and, the rest of the economy is subject to price volatility on global markets of these commodities. Other countries such as China and India are characterised by significant regional variation. Then, there are those hit by geological or weather systems and the huge variation in their capacity and ability to recover. As Paul Collier commented when an NGO leader suggested that the Humanitarian job after the earth quake was to get Haiti back on its feet – “Haiti has never been on its feet in the first place”.
In 2000, Economics students at the Sorbonne staged a protest against mainstream economics. “We no longer want to have this autistic science imposed on us.” They were protesting against the teaching of little more than neo classical economics with its “imaginary worlds”, disregard for concrete realities and, uncontrolled use of mathematics. It was a plea for pluralism and the inclusion of other areas of enquiry such as ecological degradation – which Nicholas Stern has called the “greatest market failure in history” – and a move away from mathematical models that distance themselves (and political leaders) from reality. The tendency to view markets as a perfect mechanism was dismissed by George Soros as “market fundamentalism”.
Soon enough the high tide of free markets hit the three F’s crisis and what was considered anathema became legitimate macro-economic critique. Fulbrook (Edited, 2007) provides a useful summary of the rationale and scope of this Post Autistic Economics Movement. Elsewhere, Amsden (Escape from Empire, 2007) highlights the journey that so many developing countries have taken through heaven and hell. In one metaphorical aside Amsden takes the old Chinese saw – give a person a fish and feed them for a day; teach them how to fish and you do so for a lifetime – and, asks the questions whether local industry has the money to buy the fishing tools; the canning facilities and freezing equipment or, the funds to reach markets with sufficient scale to warrant the investment from end-to-end.
Perhaps it is time to extend the perspective to logistics and the supply chain and develop an approach that reflects diversity in markets; asymmetries in circumstance and, the need to build from values as well as value.
Going back to the classics is well worth the insights. Some would start with Adam Smith’s The Wealth of Nations (1776) and the emphasis on markets and the invisible hand. Others would argue that a balanced view of the market, an ethical dimension, comes from Smith’s earlier Theory of Moral Sentiments (1759). Amartya Sen has used this perspective in his well-developed work on Famines (Sen, Poverty & Famines, 1981; Sen & Dreze, India Development & Participation, 1996)and, his work on Ethics and Economics (1987). See also, Development as Freedom (1999). Earlier, Karl Polanyi’s classic (The Great Transformation, 1944) offers useful insights and challenges the self-regulating capacities of the free market position – see Stiglitz foreword to the latest Edition (2001) and his warning that “rapid transformation destroys old coping mechanisms, old safety nets, while it creates a new set of demands, before new coping mechanisms are developed.” Beinhocker (The Origin of Wealth, 2005) provides ground breaking insights and new answers to a range of age old questions. Today, after the three F’s crisis (Fuel, Food and Finance), there are few who support the proposition that markets, by themselves, lead to efficient, let alone equitable outcomes. No invisible hand and self interest alone will take Iraq, Haiti, Pakistan and Niger to market.
As Justin Yifu Lin, Senior Vice President and Chief Economist of the World Bank puts it: “the new socio economic thinking advised developing countries to eliminate their (market) distortions in a “big bang” manner so as to transit quickly to a well-functioning market economy” (Economic Development in Transition, 2009). This was the Washington Consensus and the orthodoxy that Joseph Stiglitz (Globalisation and Its Discontents; The Roaring Nineties and, Making Globalisation Work) and others observed; led to the collapse of the Soviet Economy: “the doctrines of capital market liberalization provided an open invitation for the oligarchs to take their sudden wealth out of the country”(quoted Stiglitz Foreword to the Great Transformation). John Gray (False Dawn, 1998) ushers in a powerful analysis of the deepening instability of Global Capitalism that the Korean Cambridge based Economist Ha-Joon Chang elaborates (Kick Away the Ladder, ;Bad Samaritans, 2007 and most recently, Things they don’t tell you about Capitalism, 2010). Chang challenges the notion that the USA and the UK have used free markets as the means to achieve their economic leadership pointing out that both countries used Protectionist policies to build competitive advantage before “kicking away the ladder”. As President Ulysses Grant responded to UK criticism of his country’s resistance to free trade policies: “within 200 years when America has gotten out of protection all that it can offer, it will adopt free trade.” Chang uses detailed examples to demonstrate how the developed world has used tariffs, subsidies, cartels and state support for R&D to develop key industries, especially textiles, steel and engineering; and been more adamant in opening up markets in developing countries than in opening up their own markets to goods and services that represent the developing world’s comparative advantage. Other observations on post war Korea more could be of real use on contemporary Iraq.
Yifu Lin’s work on transition economies went beyond the crisis in places like the old Soviet Union and highlighted success in China, Vietnam and other Asian transitional economies who had adopted a dual track gradual approach. Here, state enterprises were protected to some extent and other industries were fostered in parallel. This was a micro-first approach whereby incentives for small farmers and other micro enterprises were used to build enterprise capacity as opposed to a macro-first big bang of State enterprises that couldn’t cope on the open market; they went bankrupt and generated serious labour and social problems. Elsewhere, Rajni Bakshi (Bazaars, Conversations & Freedom, 2009) covers how the market culture can develop beyond greed and fear and takes us back to the inclusive territory that logistics needs explore.
Here, the learning for Logistics and Supply Chain thinking is that it should be issue and problem led and not method alone. This means more know-how and less a focus on one best way. It should be adaptable to context; sensitive to affordable solutions and, look to maximise accessibility. It is not simply a question of better, cheaper and faster routes to market. All of which does challenge the notion that markets alone can solve the issues that emerge and hence this closing note on economics and the wider market context as part of the story.
Overall Transformational Logistics can play a valuable role in acting as a catalyst for research, better understanding and then, to capture fresh and better practice relevant to these fast expanding markets. After all, as Developed markets stall and struggle for growth these Emerging, Developing and Frontier markets assume greater importance – as markets and, as places to learn from. This is reverse innovation.
This Blog has been the first step on the Transformational Logistics journey. There is much to be done but so much to offer.